9609_w16_qp_22
A paper of Business Studies, 9609
Questions:
2
Year:
2016
Paper:
2
Variant:
2
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1
Pampered Pets (PP) PP is a chain of shops that sells pet food and accessories. Most of the shops are franchises. This has allowed PP to grow rapidly over the past three years. John is thinking of becoming a franchisee of PP. John has recently suffered redundancy from his long term job in a factory producing pet food. He does not have any experience in managing a business but his brother has been a shop manager and may be willing to work with John. A franchise with PP requires start up capital of $50 000. However, PP provides all the advertising, branding, signs and fittings for the shop. John will require appropriate sources of finance to be able to afford this start up cost as well as some working capital. Another option for John is to open an independent pet shop. This will require start up capital of $10 000. To help him make his decision, John has completed some research into both options. Table 1: John’s research PP franchise shop Independent shop Brand recognition High None Estimated advertising costs (in first year) $0 $10 000 Other costs (including cost of sales) $40 000 $25 000 Allocation of total profit 25% to be paid to PP 75% retained by John 100% retained by John Number of employees needed Estimated revenue (in first year) $60 000 $40 000 Profit received by John X $5 000 Define the term ‘redundancy’ (line 3). Briefly explain the term ‘working capital’ (line 9). Refer to Table 1. Calculate the value of X. Briefly explain why the revenue of an independent shop is likely to be less than a PP franchise shop. Analyse two possible sources of finance that John could use to finance the opening of a PP franchise. Recommend whether John should open a PP franchise or an independent shop. Justify your view.
5. Finance and accounting (AS Level)  →  5.1. Business finance
9. Operations management (A Level)  →  9.3. Operations strategy
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2
Fire Fly Ebooks (FFE) FFE is a manufacturer of electronic book readers (e-readers). The product is used to read electronic books which are sold by other businesses. FFE’s product is a simple and inexpensive e-reader with a retail price of between $20 and $30. FFE sells each e-reader to retailers for $10. There are many competitors in the market and FFE has calculated the price elasticity of demand to be very elastic. There are similar products on the market and FFE must try to maintain a Unique Selling Point (USP) for its product. In the past the USP has been its low price; but, as more brands become available, extra features have become more important. These features include: built-in lights, speakers for audio books and voice control to change page. FFE does not currently offer any extra features in its product. FFE has received an order from a new retailer. This order is to be delivered in Month 2. The retailer wants two months to pay in Month 4, so that it has chance to sell the e-readers before paying FFE. This might cause FFE cash flow problems. FFE has produced a cash flow forecast which includes the new order. Table 2: Cash flow forecast for FFE Month 1 ($) Month 2 ($) Month 3 ($) Month 4 ($) Cash inflows: Cash sales 10 000 10 000 10 000 10 000 Trade receivables 2 000 2 000 2 000 15 000 Total cash in 12 000 12 000 12 000 25 000 Cash outflows: Factory rent 2 000 2 000 2 000 2 000 Cost of sales 8 000 16 000 8 000 8 000 Insurance* 12 000 Electricity** 3 000 3 000 Total cash out 25 000 18 000 10 000 13 000 Opening balance 10 000 (3 000) (9 000) (7 000) Closing balance (3 000) (9 000) (7 000) Z *Insurance is paid once a year **Electricity is paid once a quarter (every three months) Define the term ‘brand’ (line 8). Briefly explain the term ‘price elasticity of demand’ (lines 5–6). Refer to Table 2. Calculate the value of Z. Explain two advantages to FFE of accepting the order from the new retailer. Analyse the importance of two elements of the marketing mix to FFE. Discuss how FFE could improve its forecast cash flow.
5. Finance and accounting (AS Level)  →  5.3. Forecasting and managing cash flows
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